HDGE: May 2020 Portfolio Manager Review
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/etfs/hdge.
For the month of May, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -10.63% on market price while the S&P 500 Index gained 4.76%.
|Performance History (05.31.2020)||HDGE NAV (%)||HDGE Market (%)|
As stated in the Prospectus, the total annual operating expenses are 3.12% (includes 0.18% acquired fund fees). Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent month-end performance please visit www.advisorshares.com/etfs/hdge.
S&P 500 Relative Strength Stock Market Index is Most Overbought Ever: Be careful!
We use numerous indicators to guide us on the strength and weakness of the stock market in terms of when to buy, sell or take defensive measures. One of the important short-term indicators we follow is the 14-day S&P 500 Relative Strength index (RSI) which shows us the percentage of stocks that are overbought or oversold in the S&P 500. When the S&P 500 RSI is above 70% that tells us the stock market is overbought, which requires us to take defensive measures. Similarly, a reading of 30% or lower tells us that the market is oversold. That generally indicates a buying opportunity. The chart below shows us that the S&P 500 RSI is not only over 70 but has reached its most overbought level ever. That is an indication to be very careful, especially in the short-term.
May’s rally was marked by a return to a strongly pro-risk posture among investors. The embrace of risk drove lower quality stock outperformance. Two Rivers Research notes that stocks of unprofitable companies gained substantially relative to their stock universe.
Unsurprisingly, highly shorted shares, which tend to represent lower quality companies, rose as well. Both indicate an excess of speculative fervor among equity investors.
“Days to cover” measures approximately how many days it will take short sellers to cover their existing short positions in a stock given the number of shares traded daily. The higher the number, the longer it will take shorts to cover their positions, and potentially the higher the probability of a ‘short squeeze’.
Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended. Stocks chosen were based on Two Rivers Analytics’ universe of stocks. © Copyright 2019. All Rights Reserved Two Rivers Analytics. Further Distribution Prohibited without prior permission.
For the month of May 2020, the largest realized and unrealized gains were LendingClub Corp (LC), Weibo Corp Sponsored ADR Class A (WB), HSBC Holdings PLC Sponsored ADR (HSBC) and Baozun Inc Sponsored ADR Class A (BZUN). LendingClub (LC) stock fell -30.25% in May. LendingClub’s online lending platform is focused on subprime consumer loans. We shorted the stock due new competition for such loans, as well as their heightened economic exposure to a downturn. We have covered the short. Social media company Weibo Corp (WB) stock dropped dramatically mid-month, ending down -18.01%. Weibo reported a drop in advertising revenue of 19%, a drop in the VAS revenue of 17% and a drop in their key accounts business of 24%. HSBC Holdings (HSBC) stock fell -10.42% in May. The stock fell largely on intensifying fears about weakness in China and related concerns regarding china’s crackdown on HK sovereignty.
The largest realized and unrealized losses for May were Appian Corporation Class A (APPN), Elastic NV (ESTC) and Credit Acceptance Corporation (CACC). Software and service provider Appian Corporation (APPN) stock rode the low quality rally to a gain of 24.72% on the month. The stock also rose in sympathy with Microsoft’s acquisition of a competitor in the RPA (robotic process automation) space. We covered the short. Elastic (ESTC) stock rose the same wave to rise 33.96%. Elastic provides big data software tools. We covered the short. Credit Acceptance Corporation (CACC) stock rose 18.70%. The business originates subprime auto loans, then repackages them into asset backed securities. Credit quality is deteriorating across the economy in a lending market that had seen easy terms for too long.
|Ticker||Security Description||Portfolio Weight %|
|CACC||CREDIT ACCEPTANCE CORP||-3.06%|
|HGV||HILTON GRAND VACATIONS INC||-2.35%|
|VALE||VALE SA-SP ADR||-2.26%|
|GPC||GENUINE PARTS CO||-2.21%|
|CAJ||CANON INC-SPONS ADR||-2.21%|
|CNI||CANADIAN NATL RAILWAY CO||-2.14%|
|WYNN||WYNN RESORTS LTD||-2.07%|
As of 05.31.2020. Cash not included.